Law 7190/2023 "On Carbon Credits" (the "Law"), enacted on October 12, 2023, marks a significant milestone for Paraguay and positions it at the forefront of Carbon Credit regulation in the region.

The Law regulates, among others, the ownership of Carbon Credits generation projects and the creation of the Carbon Credit Registry, to be administered and supervised by the Ministry of Environment and Sustainable Development (Mades) as the enforcement authority for the Law.

The Law establishes that the ownership of Carbon Credits belongs to the owners of the property, or the assets assigned to the project, including the surface rights’ owners pursuant to Law 4890/2023 on Surface Rights, or to those to whom the rights have been assigned.  

The Carbon Credit Registry, pending to be regulated by Mades, will register the projects generating carbon credits, the holders of such projects, any modification, transfer, or assignment of carbon credits by the holders, as well as credits generated outside the country and acquired by residents in Paraguay. Among the main objectives of this registry, it is worth mentioning the prevention of double counting of carbon credits in registered projects and the publicity of the projects and the carbon credits generated by them. The Law does not restrict the registration of carbon credits before other national or foreign registries or carbon standards.

Carbon credits may be transferred in full or in fractions, except for a percentage of 3% to 10% (to be determined by Mades) that may not be transferred to ensure compliance with Paraguay's Nationally Determined Contributions (NDC) . It is important to note that the transfer of carbon credits is exempt from Value Added Tax (VAT).

The Law also establishes the possibility of requesting Mades to issue a Certificate of Non-Objection to the transfer of carbon credits abroad, to avoid double accounting of credits, prior to their registration in the Carbon Credit Registry. In addition, the Law establishes as a requirement that the Project Developers (professionals or companies in charge of elaborating the project to be submitted to the Carbon Standard, as defined in the Law) must have a participation of at least 50% of Paraguayan labor.

Potential infringement of the Law and applicable regulations, such as failure to register in the registry, providing false information, failure to withhold NDCs, and others, will be sanctioned with temporary or permanent disqualification from registration in the registry and fines.

In our view, the inclusion of a regulation on this matter benefits both the public and private sectors. The law provides clarity and reliability to the local carbon market, which should encourage investments in carbon mitigation projects in Paraguay.